NEW YORK (TheStreet) -- Google GOOG shares have been on a tear over the past three months, but the run could be just starting, according to one analyst.
Carlos Kirjner of Bernstein Research believes the Internet giant's share price could hit $1,000 over the next 12 months, as the adoption of smartphones, tablets and the mobile Web all flow to Google's bottom line.
Kirjner believes that concerns about mobile being bad for Google are overblown. In the company's fourth-quarter results, cost-per-click (CPC), a key metric for ads, fell 6% year-over-year, but actually rose 2% sequentially, alleviating some of Wall Street's biggest concerns. "We believe mass adoption of smart phones, tablets and the mobile Web is a large value creation opportunity for Google. In other words, we disagree with the most popular Google bear case, which posits that mobile is bad for revenue growth and profitability," Kirjner wrote in his report.
There has also been a nagging concern that Android, though it's the dominant mobile operating system, would not make any money. Perhaps that line of thinking is wrong, though, and Android can indeed be profitable for Google.
Google has become what Apple AAPL was in 2012, something of a Wall Street darling. The stock has gained more than 12% this year, fueled by investor optimism about the innovation going on in Mountain View, Calif.
Google Glass is one such innovation, casting Google in a positive light. "For years, Google has been perceived as investing in products that never seem to come to market," analyst Brian Sozzi wrote, in an email. "But, with pictures of a self-driving car floating around the Internet, and Google Glass set for release, it's very apparent years of investment are about to be unleashed into the everyday environment."
Kirjner believes most of the upside in Google comes from mobile, especially YouTube, which he calls "an underappreciated asset." With people spending more and more time watching video on the Internet, YouTube's growth is not yet fully appreciated by the market. Kirjner believes that YouTube is already a multi-billion dollar business with strong growth and good operating margins.
On the earnings call, Google said viewers are watching 4 billion hours of videos a month, and that's translating to advertising revenue, with advertisers increasing their spend 50% from 2011 to 2012. The top 25 advertisers now spend over $150 million each per year on YouTube, helping Google's move to mobile.
The bear case on Google has always been that mobile does not monetize as well as desktop, be it search or ads, but recent trends suggest differently. Kirjner notes that Google Sites revenue grew 20% year over year. That takes into account PC search, mobile search and YouTube. If PC search growth is declining with the overall PC decline, than perhaps mobile is monetizing better than people think.
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Kirjner places heavy importance on mobile, and others on Wall Street agree. Following Google's earnings report, J.P. Morgan analyst Doug Anmuth wrote that he feels better about the mobile transition going forward. "As the business continues to shift toward mobile and advertisers think holistically about clicks rather than about which devices they're coming from, we think the Street will as well, and that bodes well for Google," he wrote, in a research note.
As mobile becomes more prevalent in day to day life, the fear is that apps would hurt Google's core business, specifically e-commerce. Amazon AMZN and eBay EBAY account for almost a third of all Internet e-commerce, but so far, that has not affected Google's search revenue. Kirjner believes that Google gets 20% to 25% of its search revenue from e-commerce, but if every user shifts to apps, "the impact on Google search revenue growth will be material but limited."
As Google continues to diversify and move into other revenue streams, Kirjner believes there's a chance for innovation from these streams, such as the aforementioned Google Glass. Aside from YouTube, there's also the display business and the device business (which includes Google's Nexus lineup and the Motorola offerings), as well as Google Play.
Recent rumors suggest that Google could launch its own retail stores to show off the new hardware attached to the Google name, but according to sources close to the situation, the rumors could be overblown.
Google is growing at such leaps and bounds, with years of research and development starting to pay off. It almost seems that a share price of $1,000 is inevitable, as long as the company continues to execute on its plan. Not bad for a company that started out of a Stanford lab.
--Written by Chris Ciaccia in New York
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